BOSTON (TheStreet) -- The observance of "National Long-Term Care Awareness Month" in November came as two major insurance companies retreated from the industry, dramatically shrinking their role in it.
There are new products on the way that could serve as replacements, but for those approaching retirement, or considering a long-range plan, the troubles facing this marketplace are cause for concern.
Given longer life spans and the massive number of baby boomers retiring over the next decade, the potential for asset-ravaging care needs is an often neglected but no less important planning need.
In a sign of industry troubles, insurers such as MetLife are discontinuing some or all sales of long-term care insurance policies.
On Nov. 11,
announced that it will discontinue the sale of new long-term care insurance policies as of Dec. 30. Existing customers will not be affected and, "as long as premiums are paid on time, coverage cannot be canceled," the company assured.
"While this is a difficult decision, the financial challenges facing the LTCI industry in the current environment are well known," said Jodi Anatole, vice president of long-term care products for MetLife, in a statement.
On the heels of that announcement, another dominant underwriter,
, moved away from the business of selling LTCI policies to companies who offer them as an employee benefit. It will now sell policies only to individuals. It has also sought as much as a 40% premium increase in some states.
Despite the potential that a vast number of aging boomers could benefit from LTCI, products offered by such companies as
New York Life
are underused. Sales were down by nearly one-fourth last year and, according to industry statistics, a mere 7 million policies are active.
, an industry trade group, estimates that roughly 10 million Americans need long-term care, with annual expenditures exceeding $200 billion.
A sense of the economic impact is also laid out in research by
showing that long-term care costs have outpaced inflation.
In 2005, the median annual rate for a private nursing home was $60,225, it said in its latest Cost of Care Survey. The rate this year was $75,190 -- a 4.5% compound annual growth rate. The company's website features an
designed to help consumers see a variety of long-term care costs in their home state.
"Aging baby boomers are going to put enormous pressure on the health care system 20 years from now, when they might need long-term care, however defined," says
Martin A, Corry
, director of Federal Health Policy for
Buchanan Ingersoll & Rooney
, a firm with 450 attorneys and government relations professionals. "People who otherwise would have died from an injury or illness are not going to."
Rising costs are made even more unpalatable by reduced savings. Many nest eggs were depleted during the recession, the middle-aged have financial obligations to younger and older family members and home equity can no longer be counted upon as an appreciating asset.
Low interest rates have also made it increasingly difficult for insurance companies to accrue the investment returns needed to ensure both payouts and profits.
There is also human behavior to contend with. The key to a sustainable industry, and affordable premiums, is to have a larger, mixed pool of the insured, young and old. But attracting younger policy holders is far easier said than done. The cost of policies may also be putting off many, especially in a volatile economy and era of double-digit unemployment. Given that a policy may never even be collected on, writing a check for $1,000 to $4,000 or more a year can be a hard sell.
"There is an inherent sort of problem in that you want to encourage people to purchase long-term care insurance early, because otherwise they tend to be pretty pricey," says Corry, who served 14 years as director of federal affairs for the
. "Ideally, a 30-year-old purchases a policy and keeps it until they need it 50 years later. But that's a hard calculation for a 30-year-old to make, even when the economy was healthy, relative to all the other things that they confronted with and assuming, of course, that you could also get them to understand that they weren't going to be immortal and eventually might need it. Then, by the time it starts to occur to folks that they might need it, they are easily in their 50s or 60s and the premiums become particularly pricey."
One-fourth of people buying long-term care insurance during the first half this year who were under the age of 61 pay less than $1,000 a year, according to the AALTCI. Costs for long-term care insurance can vary significantly, however, based on the age when one applies, health status and the amount of future benefits. Among buyers age 61 to 75, 44% paid annual premiums between $2,500 and $4,000.
New products are starting to arise from the long-term care conundrum.
, Link Baker, group vice president of strategic initiatives for SunTrust Investment Services, an affiliate of
Sun Trust Banks
, explained that relatively new "linked benefit" products offer greater flexibility and are proving increasingly popular. In the past year, 90% of the long-term care benefit offerings it sold were linked-benefit products that allow a client to put aside a given amount and earmark those funds to pay for long-term care needs if they arise. The assets are linked to a life insurance contract and can potentially grow to three to four times the original premium. Unlike traditional LTCI policies, they are not "use it or lose it," and there is still a guaranteed payout.
A product wrinkle comes from the federal Pension Protection Act of 2006, legislation that established several provisions intended to kick in this year. It gave tax-advantaged status to long-term care benefits paid from annuities and has opened the door for linked-benefit products built on an annuity chassis. The coming year may see more of these products introduced.
An additional option may also come from the health care reform package signed into law earlier this year.
The law forms the Community Living Assistance Services and Supports program -- known as CLASS Act -- expected to be launched in late 2012. It creates a national insurance program to help defray the cost of long-term care.
Premiums (which, although still not set, are intended to be modest) can be paid directly or through payroll deductions. If the holder becomes disabled, and unable to perform everyday functions, the policy will pay $50 per day. Though far less than what a nursing home would cost, the policy is meant to encourage home health care. It is also intended to keep many seniors from a "spend down" of their assets, a fire sale necessary to qualify for Medicaid and its nursing home coverage.
-- Written by Joe Mont in Boston.
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